OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of "a-" (Excellent) of the operating subsidiaries of MGIC Investment Corporation. The operating subsidiaries are Mortgage Guaranty Insurance Corporation, MGIC Indemnity Corporation, and MGIC Assurance Corporation (collectively referred to as MGIC). The outlook of these Credit Ratings (ratings) is stable. All companies are domiciled in Milwaukee, WI.
The ratings reflect MGIC's balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
MGIC's risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), is at the strongest level on base and stress scenarios. The base scenario is analyzed based on the company's financial statements as of June 30, 2022, which reflects the improved housing market and the diminished impact from the COVID-19 pandemic.
The company's compliance with Private Mortgage Insurer Eligibility Requirements (PMIERs 2.0), utilization of traditional reinsurance and mortgage insurance-linked securities to reduce its earnings and capital volatility, strong liquidity position and conservative investment portfolio, as well as the proven financial flexibility to raise capital during unfavorable economic conditions, support the balance sheet assessment of strongest.
AM Best assesses MGIC's operating performance as adequate. The company's loss ratio, combined ratio, and percentage of loans in default continued to decrease in 2021 and the first half of 2022 compared with year-end 2020. The various programs and policies implemented by the government, governmental agencies, and government-sponsored enterprises (GSEs) have helped to mitigate the negative impact of the COVID-19 pandemic on MGIC. MGIC's average loss, expense and combined ratios from 2017 to June 2022, showed underwriting profitability. The loss and combined ratios in 2021 had fallen below the 2019 level. They fell below 0% in the first half of 2022, predominantly caused by favorable loss development from the greater-than-initially estimated cure rate on COVID-19 delinquencies. Additionally, the percentage of loans in default in the first half of 2022 has declined to lower than its pre-pandemic level. MGIC's expense ratio slowly and steadily increased over the past few years primarily due to investments in technology to enhance its data and analytic capabilities and the abilities to work with broad range of customers. The company's credit profile has been improving over the past several years, mainly driven by its improved underwriting standards and the effect of the risk-based capital charges established by the PMIERs 2.0.
AM Best assesses MGIC's business profile as limited, as the company is a monoline (re)insurer. Furthermore, it faces stiff competition from other private mortgage insurers and governmental agencies (e.g., Federal Housing Administration and Veterans Affairs) providing mortgage insurance. In addition, product risk is considered high because the performance of the mortgage insurance industry is highly linked to the macroeconomic environment and the standards set by the GSEs: Fannie Mae and Freddie Mac. However, this risk is offset partially by the various reinsurance programs that MGIC has utilized.
AM Best assesses MGIC's overall ERM as appropriate, as the company employs a robust ERM framework and infrastructure that is embedded across the company. MGIC's ERM framework is commensurate with the size, nature and complexity of its mortgage insurance business. AM Best considers MGIC's risk assessment capabilities to be aligned appropriately with its risk profile.
This press release relates to Credit Ratings that have been published on AM Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best's Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best's Credit Ratings, Best's Performance Assessments, Best's Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best's Ratings & Assessments.
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